Principles of Finance - Ratio and Trend Analysis | Report

Running head: PRINCIPLES OF FINANCE
Principles of Finance
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Section A.........................................................................................................................................2
Introduction..................................................................................................................................3
Company Introduction and Overview of Financial Performance and Position...........................3
Ratio Analysis..............................................................................................................................4
i) Comparison of Financial Performance over the Past Four Years............................................4
ii) Comparison with the Competitor............................................................................................7
Trend Analysis...........................................................................................................................10
Comment on Business from Investors’ Perspective..................................................................11
Conclusion and Recommendation to Enhance Financial Performance in Future.....................12
Limitation of Analysis and Any Reservation............................................................................13
Conclusion.................................................................................................................................13
Section B........................................................................................................................................15
Problem 2...................................................................................................................................15
References......................................................................................................................................16
Appendix........................................................................................................................................18

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Section A
Executive Summary
Investors all over the world adopt different method, techniques and tools for analyzing the
financial statements of the business organizations so that they can assess the financial
performance and position of the firms. This helps in making investment decisions. This report
involves in applying ratio analysis and trend analysis for measuring the financial performance of
GlaxoSmithKline Plc. Findings of the report show that the company is a well-performing
company that is suitable for investing in.

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Introduction
Assessment of the financial performance of the business organizations is a key technique
for analyzing the financial performance and financial position of those companies. Under this
technique, the key financial statements of the firms along with the notes to the financial
statements are taken into account by the investors and other stakeholders for the purpose of
analysis. Some major methods under this are the analysis of ratios, analysis of trends and others
since these methods help in assessing and comparing the companies’ performance with other
competitors and different timeline of the same companies. The aim of this report is the analysis
of the financial performance and position of GlaxoSmithKline Plc (GSK) through the analysis of
relevant ratios and trends. This also compared the financial performance of GSK with one of its
main competitors named AstraZeneca (AZN).
Company Introduction and Overview of Financial Performance and Position
GSK is one of the major multinational pharmaceutical companies of Britain that is
headquartered in Brentford, London. GSK operates in the pharmaceutical biotechnology
consumer goods industry; and the main products of the company are pharmaceuticals, vaccines,
nutritional products, oral healthcare and over the counter medicines. GSK is known as a science-
led global healthcare corporation with the purpose of helping people to do more, feel better and
live longer (gsk.com 2020).
GSK has performed well in terms of revenue as it has continuously increased from 2015
to 2018. Both operating profit and profit after taxation has decreased from 2015 to 2016; but
these have continuously increased from 2016 to 2018. EPS has improved from 2016 to 2018.
Major improvements can be seen in return on capital employed from 2016 to 2018. Total assets

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have increased from 2015 to 2016, the decreased in 2017 and finally increased in 2018. Total
liabilities have increased from 2015 to 2018. Total equity has decreased from 2015 to 2018
(gsk.com 2020).
Ratio Analysis
i) Comparison of Financial Performance over the Past Four Years
2018 2017 2016 2015 2018
66.77% 65.74% 66.69% 62.99%
13.13% 7.19% 3.81%
35.00%
Profitability Ratios
Gross Profit Margin Net Profit Margin
Gross profit margin of GSK has continuously increased from 2015 to 2016. This is a sign
of improvement for the company. However, net profit margin of GSK had a massive fall from
2015 to 2016; and this keeps improving from 2016 to 2018 in a slow pace (Innocent, Mary and
Matthew 2013).

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2018 2017 2016 2015
0.75
0.60
0.88
1.24
0.51
0.39
0.61
0.88
Liquidity Ratios
Current Ratio Quick Ratio
Liquidity position of GSK has deteriorated from 2015 to 2018 as both current and quick
ratio is below 1. Current ratio of GSK has fallen from 2015 to 2017 and has slightly improved in
2018. The same trend can be seen in case of quick ratio as this majorly deteriorated from 2015 to
2017; and slightly improved in 2018. This is not a good sign for GSK (Williams and Dobelman
2017).
2018 2017 2016 2015
1.86 1.94 1.89 1.98
5.03 5.02 4.79 4.68
Activity Ratios
Inventory Turnover Accounts Receivable Turnover